AppLovin buys Machine Zone to expand mobile gaming ambitions

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Brief:

AppLovin acquired mobile game developer Machine Zone for an undisclosed sum, according to a press release. Machine Zone is best known for developing popular free-to-play multiplayer games such as "Final Fantasy XV: A New Empire," "Game of War: Fire Age" and "Mobile Strike."

The combined companies will have almost 800 employees and expected yearly sales of $1.5 billion, Herald Chen, president and CFO of AppLovin, told The Wall Street Journal. Machine Zone's games have generated $5 billion from more than 310 million lifetime downloads, per Sensor Tower data cited in VentureBeat.

As a result of the deal, AppLovin will move its headquarters to the Machine Zone office in Palo Alto, California. The acquisition follows AppLovin's recent investment in Redemption Games, the maker of puzzle game "Sweet Escapes."

Insight:

AppLovin snapping up Machine Zone will help to strengthen the company's presence in the rapidly growing mobile gaming market, while building on a series of recent investments in app developers. AppLovin has an existing game studio business, as well as experience in user acquisition that could complement the skills of game developers that are looking to grow their audience.

The deal follows some internal struggles at Machine Zone. In 2018, the developer scaled back its marketing team and closed down Cognant, an internal demand-side platform to manage and measure app marketing campaigns, AdExchanger reported.

Acquiring Machine Zone will help AppLovin to build scale after investing in PeopleFun, Belka Games, Clipwire Games, Firecraft Studios and Geewa. The firm also has an in-house developer arm called Lion Studios that has tended to focus on puzzle games and the category of "hyper-casual" games that are easier to learn than more complex ones aimed at hardcore gamers.

Before buying Machine Zone, AppLovin had about 30 million daily active users for its game studios and about 500 million across its entire marketing platform, per The Wall Street Journal. Private-equity giant KKR in 2018 invested $400 million in AppLovin in a deal that valued the company at $2 billion, Reuters reported. That financial backing has helped to support AppLovin's acquisitions and investments.

Many of those investments going toward mobile gaming makes sense. Last year, consumer spending on mobile games in Apple's App Store and the Google Play store rose 13% to $61.7 billion worldwide, making up 74% of all in-app spending, app researcher Sensor Tower reported in January. "Honor of Kings," the mobile game from Chinese internet giant Tencent, was again the top-grossing iOS title with an estimated $1.43 billion in revenue worldwide.